Trading Tips for Beginners

 Trading Tips for Beginners

Day trading is the act of buying and selling a financial instrument within the same day or even multiple times over the course of a day. Taking advantage of small price moves can be a lucrative game if it is played correctly. Yet, it can be dangerous for beginners and anyone else who doesn't adhere to a well-thought-out strategy.

Not all brokers are suited for the high volume of trades day trading generates. On the other hand, some fit perfectly with day traders. Check out our list of the best brokers for day trading for those that accommodate individuals who would like to day trade.

The online brokers on our list, Interactive Brokers and Webull, have professional or advanced versions of their platforms that feature real-time streaming quotes, advanced charting tools, and the ability to enter and modify complex orders in quick succession.

Below, we'll take a look at ten day trading strategies for beginners. Then, we'll consider when to buy and sell, basic charts and patterns, and how to limit losses.

1. Knowledge Is Power

In addition to knowledge of day trading procedures, day traders need to keep up with the latest stock market news and events that affect stocks. This can include the Federal Reserve System's interest rate plans, leading indicator announcements, and other economic, business, and financial news.

So, do your homework. Make a wish list of stocks you'd like to trade. Keep yourself informed about the selected companies, their stocks, and general markets. Scan business news and bookmark reliable online news outlets.

2. Set Aside Funds

Assess and commit to the amount of capital you're willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 trading account and are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200 (0.5% x $40,000).

Earmark a surplus amount of funds you can trade with and are prepared to lose.

3. Set Aside Time

Day trading requires your time and attention. In fact, you'll need to give up most of your day. Don’t consider it if you have limited time to spare.

Day trading requires a trader to track the markets and spot opportunities that can arise at any time during trading hours. Being aware and moving quickly are key.

4. Start Small

As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. Recently, it has become increasingly common to trade fractional shares. That lets you specify smaller dollar amounts that you wish to invest.

This means that if Amazon shares are trading at $3,400, many brokers will now let you purchase a fractional share for an amount that can be as low as $25, or less than 1% of a full Amazon share.

5. Avoid Penny Stocks

You're probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid and the chances of hitting the jackpot with them are often bleak.

Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, steer clear of these.